Suryoday Small Finance Bank Limited (SURYODAY) Earnings Call Transcript & Summary

Shailesh, Sasidhar here. So a couple of things we have changed almost 2 years back is November 2024 onwards. So besides the standard 2 lenders, 3 lenders filters, we also started focusing on the unsecured loans as a basket and the recency of unsecured loans and the heating factor on unsecured loan and our honest payment behavior. So this is a combination of it, we have fundamentally redone our profiling. So we have categorized customers in the A, B, C, D, E and we focus on A, B and C. In a good market, we can do more C and D. But at the moment, market also gets tougher, then we focus more and more on A and B. So we do an internal segmentation of customers. and it is significantly -- across we tested it for 3 different time frames cohorts, and it's holding good. So we should continue to scale on this.

So this profiling will be predominantly for the IL customer, right?

So largely for the micro banking customers that includes MSME and individual loans.

Okay. Okay. Fair enough. I just have one last question from my side. In terms of growth drivers for secured book, right, we have been growing at a very fast pace over year. And I think there are hardly branch additions for same. So if you can just throw some light on what are the drivers and how do we see this move going ahead?

We will be adding around closer to 50 branches in this quarter and next quarter. But more importantly, not all our products are available in all our present locations. One key thing would be micro mortgages and then expanding even CV to the other branches where we are not present at this point of time. So we have a large opportunity in terms of expanding to existing locations and branches in the retail secured products, and we'll be adding 50 primarily in terms of focus in terms of inclusive finance and commercial vehicles. Mortgages will follow generally wherever we already have a setup in terms of expanding their geographical presence. Probably we are present in no more than 25% of our current branches in terms of mortgage business. Intent would be to take it to at least 40% to 45% towards the end of the year.

So is it fair to assume that the secured book will kind of continue the current momentum?

Yes. Also as you can keep saying, considering that our base is not very large and it's not too small as well, the ability to little higher growth on that continues to be good as we see for the next quite a bit of a few quarters.

We take the next question from the line of Ashlesh Sonje from Kotak Securities.

A few questions from my side. Firstly, on the CASA deposits that has grown quite well over the last year at better than 50% Y-o-Y. Firstly, do you expect this growth to continue here on? Secondly, what is the blended cost of SA deposits and term deposits separately?

Yes. So insofar as the growth is concerned, yes, I mean, that is what we are working at. We will -- we expect to see a similar kind of growth for this CASA numbers. We will be focusing -- we are currently focusing more on SA. Over time, we will also start focusing on our current account product features and proposition. In terms of the aggregated cost. If you look at SA, last quarter, our SA had a cost of fund of about 5.7%, which we have been able to make it simple it down to 5.5%. And insofar our fixed deposit costs are concerned, it is about 8.1%.

Understood. Sir, secondly, as you grow by, let's say, 30%, 35% as you have guided in FY '27, what is the kind of OpEx that you have budgeted for in this year? Was it I think last year, you did a total of...

Yes. So I think if you look at our OpEx, the kind of target that we have assumed for ourselves to be in the range of around 67% to 70%. This is a full stack cost, including our investments in technology, branch expansion, branch-led personnel and all of that together.

Understood. Sir, and just lastly, if you can -- on the CLOU business, if you can just confirm the numbers you mentioned, what does the convenience fee income in this quarter and the corresponding expense?

We made around INR 18 crores of convenience fee income, and our proportionate cost was INR 13-odd crores.

Okay. This was not the increase in cost Q-o-Q, right? This was the absolute cost?

Absolute numbers. Yes.

If you can also share the corresponding numbers last year? Is that possible?

So this is a product which is scaling up month-on-month. We started only last year. So currently, we have around closer to 6 lakh customers who are realizing it and around 9 lakh to 10 lakh customers who have been approved. Every month, probably we are onboard around closer to 1.5 lakh, 2 lakh customers. In terms of going to the pipe, assuming that around 70%, 60% gets approved at around 1.5 lakh and around 1 lakh when we start placing it. This is monthly as of now, as we speak, very, very small [indiscernible] product. It gets extinguished at the end of the month and the remit starts again. As the continued usage happens, we will have a better visibility. But as a sense, it's scaling up closer to probably 5%, 10% on a month-on-month basis, what we are really focusing on is in terms of ensuring that we are really kind of doing the business with credit costs which are much lesser than what we have programmed for. That could be small. These are -- the average is around less than INR 5,000 at this point of time.

Understood. Sir, do you have any sense about what can be the eventual customer base that you can reach out using this product?

High potential. So as -- when we started, we obviously didn't think that we will have our capabilities in terms of customers even may come in, but VKYC becomes an extremely important capability that we will have to develop. We have been able to kind of scale it at this point of time and look forward to scale it at least for doubling or tripling the capacity. So the potential on this considering it is a small ticket and instantaneous, and it gives us a large base on which we have to build other digital products and even probably other secured asset products. So we will be comfortable if we are able to achieve double the customer count during this financial year from closer to 6 lakh users probably to around 12 lakh users. That is a conservative number. And also, there is limit to which we can really kind of look at it in terms of scale on a particular single product, even from risk management, but very comfortable for this year as far as [indiscernible].

Sir, now that you have kind of built the stack for this product, do you see a potential to also partner with other players in the market to -- for this product?

Of course. So our current partner is Paytm. They'll be expanding their kind of the partnership will be. So that's an understanding. And usually, the very question asked is that who owns the customers? Actually, both own the customer. Customer is owned by -- none of the customers have a single relationship, they have a relationship with multi-financial service providers. So whoever provides best of customer experience and product feature for that particular product tends to kind of win. Our partnership with Paytm will continue to grow strong, but we'll also be kind of onboarding a few more partners.

[Operator Instructions] We take the next question from the line of Avnish Tiwari from Vaikarya Investment Management.

Can you explain this yield on non-NPA advances, if it's currently running at about 17.4%. And if you're expecting overall yield at what level? Is it like the assumption of non-NPA book significantly reducing or nonpaid book reducing and coming to 17%? Because you also increased your secured mix which is at a much lower yield. So just help us understand where you see the field going? Are you taking any pricing action because the cost of funds are tightening. So what are -- what is in your mind when you look at this fiscal year?

I will take the first part and then maybe I'll hand over for whether we are taking any price correction. I'll give it to KC. So on yield, I think our stabilized yield would be in the range of like KC was mentioning will be in the range of 17.2% to 17.5% kind of thing. That's our stabilized yield even if we go [indiscernible] share even if it goes to 45%, which is currently it is. So stabilized yield on advances would be 17.2% to 17.5% because our secured asset also, our yield is nearly 12%. So on a mix basis, 17.2% to 17.5% is the comfortable range. On whether we are considering any prices, I would request KC to take that.

Yes. At this particular point in time, we don't foresee an immediate change in pricing across products. We continue to evaluate our pricing across all products but also especially MFI, given that we have moved on to individual loans. We have a single price that is offered across but our customer stratification has increased. So we will keep evaluating. But at this particular point in time, in this quarter, we don't quite foresee us changing our price.

And roughly, what's the yield you are getting on individual book, which is on a blended basis currently in terms either disbursements or outstanding book?

On VL it is around 25%, 25.25%. So we play in that range. The intent is that how we can really substantially optimize as we go more in terms of individual customers should it really operate in the same JLG model of each relationship officer owning only [ 400, 500 ]. Meaningfully using technology can kind of increase that capacity. So probably [ 600, 700 ] and probably more, closer to 70% of the customer as we see today, are making that payment without reaching out to them because it over phone, it's through other channels like WhatApp. When they come to the branch or through digital and make the payment before the due date which is currently for majority of the customer 7th of the month. That's I think is more focused in terms of passing on the increased cost to -- by increasing the yield specifically in the IF portfolio.

Great. Just last two questions. One is what kind of growth you look at microbanking business? And second, in terms of capital planning, any thoughts you have during the course of this year?

Yes. So at this particular point in time, our capital adequate fee is 20%. We have a Tier 2, which will be expiring next year. So we are out in the market, evaluating our proposals for raising fresh Tier 2. We hope all things going well. We hope to close something this quarter. But at this particular point in time, I think in terms of our capital adequacy from where it stands today, we will increase it marginally. But yes, I mean 20% to 22% is where we would ideally want to be given the kind of growth that we are having.

And the growth in micro banking, what level of growth you're expecting any plan for the Tier 1?

So I will put it a little differently. I think insofar as microbanking is concerned, we would like to keep to a [ 48, 52 ] kind of a mix, right? That is something that we have had for some time for most of last year. And that's the kind of a mix that we would continue to have.

And on Tier 1?

Tier 1, yes, I mean, we have a resolution going into the AGM. We are evaluating at this particular point in time in terms of what would be the right time to raise Tier 1. Nothing finalized as of yet -- as of now.

Congratulations for the great results.

We take the next question from the line of Tanay Jain from Centrum Broking.

Yes. So congrats on a good set of numbers. So actually, most of my questions have been answered. I have one question though. So your vehicle finance PAR stands at 11.5%. It was 10.1% in the last quarter. It's still relatively elevated. So could you elaborate something on that stress pockets within the CV portfolio? Are used CV loans exhibiting like a higher delinquency trend versus new CV. Can you throw some light on that?

Yes. See, we have around 80% of our -- 75%, 80% of book is in used CV. So as such, the PAR has been slightly elevated in the last quarter more because of the fuel prices increase and also in terms of load availability due to the crisis in Middle East. I think -- hopefully, I think we are past that. So I think this quarter, we should be able to settle down. This quarter and generally in the second quarter across the country when you have monsoon activated, the PAR is generally slightly elevated. But this being an earning asset, it goes back early around September or in that quarter, the third quarterly generally it grows back to the original level. So I don't see much of a concern. And specifically for us, we are not -- we focus more on used business, where the ticket sizes are much lower than compared to the new vehicles. So I don't see a great challenge. We have also had our focus or probably will be improving our focus on the light commercial vehicles and the small commercial vehicles. So in that way, I think we hopefully I think we should be able to maintain the PAR at the same level as the previous quarter.

Sasidhar here. Just to add a few things. Over the last 1.5 years, the CV market has been elevated across the industry. However, if we benchmark as a 1-year portfolio, 2-year portfolio, 3-year cohort portfolio, we are significantly outperformed the market by 2x, 2.5x on the credit quality.

Okay. That's fair. So there's no geographical impact, right? It's mainly the fuel prices and the load availability is what impacting and which will be normalized in the next quarter or so, right?

Yes, exactly. We don't have any in that way geographical concentration also in this book. We are spread across Southwest and Northern markets. So I think next quarter, it should be back to normalcy, yes.

We take the next question from the line of Deepak Agarwal from Param Capital.

Congratulation on great set of numbers. Sir, a couple of points. So one is in terms of -- I understand you've given FY '27 guidance. Now one thing what investors will want to see is consistently -- so our numbers have been volatile in the past. Obviously, the cycles on the MFI side have been steeper. But considering practically the entire MFI portfolio is insured and secured largely should not see that kind of volatility. So looking in '28 -- FY '28, '29, do you think this time it will be far more stable in terms of the earnings?

Didn't get, Deepak.

Sir, I was saying, for FY '27 largely will be closer to INR 300 crores PAT and getting into it, if I look a little ahead for FY '28, '29. So in terms of volatility, assuming whenever the next cycle comes, considering we are practically in short on the entire MFI book. So the volatility should be much lower in this cycle for us, sir, whenever this cycle comes?

Yes, Deepak, I think, in fact, if you look at it when the going was good is when we said that we will cover our portfolio. And obviously we thought that as a pure insurance, but it has certainly protected the balance sheet on the capital. As we enter into this, we are very clear that one, as Senthil mentioned, is that close to about 80% of our focus now is on individual loan. Earlier, we had to necessarily get customers through the JLG pipe to graduate them to the individual. Now as we have our product in terms of new to bank, VL, as we call it NTBVL, has picked up momentum across. Even in the new branches where we are opening up our focus now starts with NTBVL and VL rather than getting customers with JLG. This gives a reasonably good view and now it needs far more discipline than just looking at the customer in terms of the number of lenders they have. What we're really building the engine now is more in terms of this where as we said. We are not really to kind of guiding higher ROE at this point of time. The focus is at whatever we do, can every improvement be sustainable quarter-on-quarter? I mean, at least on a year-on-year basis rather than having the volatility, the model will ensure and we're kind of very, very clear in terms of looking at all the execution, not increasing our ticket raises in VL. It can really be great operating level, both of profit as well as in terms of giving cushion. So we will build, as we kind of said, we're more one-to-one connect, understanding the customer better and having executors handle a lot more. And within VL and JLG, it is not one homogeneous. VL, we are trying to categorize at least into 6 or 7 segments and desire in terms of which -- how much ratio can we have in each of those cohorts. If the customer has not borrowed at any point of time, not now, at any point of time, no more than, say, 1 MFI loan or 2 unsecured loans and the spouse or herself has got a secured loan, good track record, gold loan, all of those combinations can really now go to a point where we will have minimum 40% in category A, 30% in category B. We are close to kind of getting there in terms of figuring out. I think this year, we'll be in terms if building it saying that even in the entire cycle, what we saw, is that 75% to 80% of the customers continue to be very good, including in the cycle, it is at 20%. So what capabilities can you do rather than in terms of choosing the AT, eliminating, getting this 20% into your book as a larger one. That's the focus. I'm fairly confident that we'll be able to not just deliver good numbers, but consistent numbers across all the coming quarters. That is visibility at least in terms of 4 to 6 quarters.

Sir, also 1 question which comes to everybody's mind is so like historically, when we were insuring under the CGFMU, majority of the industry was not. And now a lot many players are talking about taking the insurance the way we're happy to. So then one pushback come, if say, 30%, 40%, 50% of the industry starts ensuring and if an event were to happen a couple of years down the line. In terms of getting that claim from the insurer perspective, does that become a challenge because then if we are talking about a very large number for them to pay out, right? Last cycle was because nobody or very few number of players are ensuring and hence, the number was much lower. But now even large universal banks have been talking about insuring the entire MFI portfolio or a very large percentage of the portfolio under the scheme. So your thoughts on how we should we look at it?

We are not looking at it as a shield for doing business. So we'll have to know, I think, with the reasonable experience in terms of anywhere between at least at the industry level closer to around INR 50,000 crores or INR 3 lakh crores is in terms of INR 180,000 crores plus, doesn't really include what our portfolio that has been written off during this period. So if you have to kind of think of a model where in an extreme scenario 2 SD, 3 SD, it's going to be around 12%, 14% portfolio kind of at risk. Whatever insurance we are taking it as the kind of the last resort. If you had to do yourself, will be a business model able to sustain during that down cycle of 1 year, 1.5 years. That's the way we are looking at it. We have not -- never looked at it, not going to look at it, but the credit insurance, is going to be our license to do business in the manner that in which kind of gives us relax norms. The norms will be far more tighter and probably the way we are looking at it maybe the premium we'll pay in the next couple of years, maybe will be higher than the claims that we'll make. I think that's the business model we want to do. This we are looking to a resolution. I wouldn't be really able to comment in terms of overall, but the NCGTC as a corporation is very well funded. But what is really expected is that this insurance is for ensuring financial inclusion, not in terms of doing business as we want and taking it forward is our understanding.

We take the next question from the line of Ankur Kumar from Alpha Capital.

Congrats for a good set of numbers. Sir, in terms of insurance, can you tell how much we have claimed and how much we have received and how much are we expecting to receive in the coming quarters?

So like I indicated, we have made a claim of our biggest cohorts in this financial year. We are likely to make possibly one more claim sometime down the line. That will be of anywhere between INR 15 crores to INR 20-odd crores.

And how much have we received in this quarter and how much are we likely to receive in the coming quarters?

That's what I said. So we received INR 387 crores, right? We will make a claim of another INR 15-odd INR 20-odd crores, which we will receive. Apart from that, additional amount that we will be eligible to claim not this year, but subsequently, will be anywhere between INR 135 crores to INR 150 crores as things stand today.

And all these INR 387 crore we have received in this quarter?

Yes.

Got it. And sir, on this PSL extra income, you said INR 46 crores, we have raved in this quarter is extra, and we expect INR 15 crores to INR 20 crores in the coming quarters. So given there is like INR 25 crores, INR 30 crores reduction in Q2, Q3, which we expect to cover from our normal growth? Am I understanding right, sir?

Yes. Some part of it will be covered. For example, our -- if you look at our MFI paying book, it has grown by about INR 500-odd crores in one quarter. So we expect that, that kind of a growth momentum will be maintained by us. There will be some income uptake from our CLOU business as well. It's been growing exponentially. And so far as retail secured businesses are concerned, they have been growing anywhere between 30% to 35% on a year-on-year basis. So that will add to the growth momentum as well.

Got it, sir. And sir, in terms of monsoon as well as war-related issues, are we seeing any issues in terms of our borrower mix?

Not really at this point of time. We will continue to be cautious. But as we have kind of well past it, this thing obviously as in the commercial vehicle little bit of the impact, as [indiscernible] mentioned. But we are not seeing and we're not really into those segments, which are substantial and directly impacted by these events.

We take the next question from the line of Vibhor Talreja from Nest Amplify.

Congratulations for a good set of results. Particularly receiving this large INR 387 crores from CGFMU, which has changed your provision coverage to above 80% and net NPAs are now less than or around 1%. So from a business continuity perspective, I heard you saying that at our base, the growth of 30% is in our control and now with net NPAs of 1% will be credit cost should be under our control. So any risk you see to your guidance of INR 300 crores plus PAT for this financial year?

As of now, no, we are kind of in a very focus in term of INR 75 crores per quarter is what we are looking at. Maybe Q2 will be a little subdued because we said that we had in terms of the PSL income. But as KC mentioned, the paying book in terms of IF is growing at least INR 120 crores, INR 150 crores, which will really add to it. So balance sustained, can every quarter be at least much a little better is what we're looking at. Deposits will -- may look like a challenge, but we are pretty clear that we have taken this early initiative. Retail -- pure retail, which is on average of around less than INR 2 lakhs per customer to the digital channels across multiple platforms is what gives us a reasonable confidence that we're able to do. Some of the deposits, which will roll over will be at a rate probably lower than what we are ensuring. So to the extent that KC guided, intend is to really keep the cost of funds around at the same level certainly for Q2 and Q3. So that's one we'll have to really focus on in terms of deposits. It's not really kind of going to take it. That's 30% growth, including probably 20% growth to maintain the CASA ratio even at 21%. It will be challenging, and we'll have to very armor ourselves to ensure that.

Ladies and gentlemen, we take that as the last question and conclude the question-and-answer session. I now hand the conference over to the management for their closing comments.

Thank you very much for your continued support, as we really navigated the cycle down. We have been entirely able to focus in terms of what we needed to do to come out of the cycle fast successfully and focus in terms of delivering sustained performance across both our physical infrastructure as well as in terms of our digital infrastructure. We are confident in terms of delivering sustained growth in terms of building a very respectable bank who are focused in terms of excellent customer experience. Thank you for the continued support.

Thank you. On behalf of Asian Market Securities, that concludes this conference call. Thank you for joining us, and you may now disconnect your lines.

Thank you.